1. The Stock Market Crash 15.1

2. Background 1920s appeared to be a decade of prosperity = “The Roaring 20s” 1920s appeared to be a decade of prosperity = “The Roaring 20s” Some believed economic problems existed below the surface Some believed economic problems existed below the surface Most ignored these warnings Most ignored these warnings

3. Credit Confidence in nation’s prosperity led many to purchase goods on credit Confidence in nation’s prosperity led many to purchase goods on credit 1929: Credit purchases =$7 billion 1929: Credit purchases =$7 billion Government encouraged credit spending by keeping interest rates low Government encouraged credit spending by keeping interest rates low

4. Problems With Easy Credit Easy access to credit enabled people to buy things they couldn’t afford Easy access to credit enabled people to buy things they couldn’t afford Economic experts worried about debt Economic experts worried about debt High consumer debt could cripple people in an economic downturn High consumer debt could cripple people in an economic downturn

5. Bull Market A market with an upward trend in prices A market with an upward trend in prices Seemed no end to 1920s Bull Market Seemed no end to 1920s Bull Market Bear Market A market with a downward trend in prices A market with a downward trend in prices

6. Stock Speculation = Playing the market by buying and selling stocks to make a quick profit – becomes popular = Playing the market by buying and selling stocks to make a quick profit – becomes popular This stimulated economic growth This stimulated economic growth Rapid buying and selling inflated stock prices Rapid buying and selling inflated stock prices Could be a problem if demand decreased. Could be a problem if demand decreased.

7. Margin Buying = The practice of purchasing stocks with borrowed money = The practice of purchasing stocks with borrowed money Speculators often buying stock with 10% down – borrowing 90% Speculators often buying stock with 10% down – borrowing 90% Margin buying was great with a bull market But…. Margin buying was great with a bull market But…. Bear market would be investors deep in debt. Bear market would be investors deep in debt.

8. The Crash October 24, 1929: Black Thursday = The beginning of the crash October 24, 1929: Black Thursday = The beginning of the crash Rising interest rates made large numbers of investors nervous Rising interest rates made large numbers of investors nervous - they began selling large # of shares - they began selling large # of shares Leads confidence to drop and prices pushed lower and lower Leads confidence to drop and prices pushed lower and lower

10. Black Tuesday October 29, 1929 October 29, 1929 Stock prices sank to shocking lows Stock prices sank to shocking lows 16 million shares of stock were sold in one day 16 million shares of stock were sold in one day = huge amount of debt = huge amount of debt

12. Stock Brokers & Debt Brokers began to contact investors who had purchased theirs on margin(by borrowing) Brokers began to contact investors who had purchased theirs on margin(by borrowing) They demanded cash to cover their loans They demanded cash to cover their loans Investors were unable to pay Investors were unable to pay = had to sell stocks at huge losses = had to sell stocks at huge losses By mid- Nov – leading stocks values were cut in half!! By mid- Nov – leading stocks values were cut in half!!